cpar mas preweek - may 2005 edition

7/25/2019 CPAR MAS Preweek - May 2005 Edition

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MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines

May 2005

OVERVIEWManagement Advisory Services1. The following characterize management advisory services except

A. involve decision for the futureB. broader in scope and varied in natureC. utilize more junior staff than senior members of the firmD. relate to specific problems where expert help is required

2. Which of the following is not classifiable as a management advisory service by CPA?A. Systems design. C. Make or buy analysis.B. Project feasibility study. D. Assistance in budget preparation.

Managerial Accounting3. The following are inherent to either management accounting or financial accounting:

1. External report2. Historical information3. Contribution approach income statement4. Generally accepted accounting principles5. Prospective financial statementsWhich of the foregoing are related to management accounting and financial accounting,respectively?

Management Accounting Financial Accounting

A. 1, 2, 5 3, 4B. 3, 5 1, 2, 4C. 2, 3 1, 4, 5D. 3 1, 2, 4, 5

COST BEHAVIOR4. Total production costs for Carera, Inc. are budgeted at P230,000 for 50,000 units of budgeted

output and P280,000 for 60,000 units of budgeted output. Because of the need for additionalfacilities, budgeted fixed costs for 60,000 units are 25% more than budgeted fixed costs forP50,000 units. How much is Careras budgeted variable cost per unit of output?A. P1.60 C. P3.00B. P1.67 D. P5.00

COST-VOLUME-PROFIT ANALYSISBreakeven Point5. Scrambled Brain Company has fixed costs of P90,000. At a sales volum

on sales is 10%; at a P500,000 volume, return on sales is 22%. Whvolume?A. P120,000 C. P225,000*B. P200,000 D. P450,000

6. Bush Electronics, Inc. had the following sales results for 2004:

V sets CD player

Peso sales component ratio 0.30 0.30 Contribution margin ratio 0.40 0.40

Bush Electronics, Inc. had fixed costs of P2,400,000.The break-even sales in pesos for Bush Electronics, Inc. are:

V sets CD player

A. P1,800,000 P1,800,000 B P1,800,000 P1,800,000 C. P1,500,000 P1,500,000 D. P1,531,915 P1,531,915

7. Glareless Company manufactures and sells sunglasses. Price and cost dSelling price per pair of sunglasses

Variable costs per pair of sunglasses:Raw materials Direct labor Manufacturing overhead Selling expenses

otal variable costs per unit Annual fixed costs:

Manufacturing overhead Selling and administrative

otal fixed costs Forecasted annual sales volume (120,000 pairs) Income tax rate

Glareless Company estimates that its direct labor costs will increase 8 pemany units will Glareless have to sell next year to reach breakeven?

A. 97,500 units C. 83,572 unitsB. 101,740 units D. 86,250 units


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8. Madel Company manufactures a single electronic product called Walastik. Walastik sells forP900 per unit. In 2000, the following variable costs were incurred to produce each Walastikdevice.

Direct labor P180Direct materials 240Factory overhead 105Selling costs 75

otal variable costs P600

Madel is subject to 40 percent income tax rate, and annual fixed costs are P6,600,000.Except for an operating loss incurred in the year of incorporation, the firm has been profitableover the last five years.In 2001, a significant change in Madels production technology caused a 10% increase inannual fixed costs and a 20% unit cost increase in the direct labor component as a result ofhigher skilled direct labor. However, this change permitted the replacement of a costlyimported component with a local component. The effect was to reduce unit material costs by25%. There has been no change in the Walastik selling price.The annual sales units required for Madel to breakeven are:

A. B. C. D.

2000 22,000 22,000 14,000 14,0002001 20,840 22,407 22,407 20,840

Profit Planning

9. Signal Co. manufactures a single product. For 2000, the company had sales of P90,000,variable costs of P50,000, and fixed costs of P30,000. Signal expects its cost structure andsales price per unit to remain the same in 2001, however total sales are expected to jump by20%. If the 2001 projections are realized, net income in 2001 should exceed net income in2000 byA. 100% C. 20%B. 80% D. 50%

10. Six-Two Convenience Store currently opens only Monday through Saturday. Six-Two isconsidering opening on Sundays. The annual incremental fixed costs of Sunday openings areestimated at P39,000. Six-Twos gross margin on sales is 25 percent. Six-Two estimates that60 percent of its Sunday sales to customers would be made on other days if the stores werenot open on Sundays. The one-day volume of Sunday sales that would be necessary for Six-Two to attain the same weekly operating income as the current six-day week is

A. P6,000 C. P7,500B. P5,000 D. P4,500

11. Gorilla, Co. provides two products, M and W. M accounts for 60 percent ocost as a percentage of selling price are 60% for M and 85% for W. TP225,000. If fixed costs will increase by 30 percent, what amount of necessary to generate an operating profit of P48,000?A. P1,350,000 C. P1,135,000B. P486,425 D. P910,000

12. Mount Park, Inc. had the following economic information for the year 2002Sales(50,000 units @ P20) Variable manufacturing costs Fixed costs Income tax rate

Mount Park budgets its 2003 sales at 60,000 units or P1,200,000. The increased competition; hence, an additional P75,000 advertising costs is maintain its sales target for 2003.What is the amount of peso sales needed for 2003 in order to equal the2002?A. P1,125,000 C. P1,187,500B. P1,325,000 D. P1,387,500

13. Larz Company produces a single product. It sold 25,000 units last yeresults:

Sales Variable costs P375,000Fixed costs 150,000 Net income before taxes Income taxes Net income

In an attempt to improve its product in the coming year, Larz is conscomponent part in its product that has a cost of P2.50 with a new and betteper unit. A new machine will also be needed to increase plant capacity.cost P18,000 with a useful life of 6 years and no salvage value. The coline depreciation on all plant assets.If Larz wishes to maintain the same contribution margin ratio after implemwhat selling price per unit of product must it charge next year to cover thcosts?A. P27.00 C. P32.50B. P25.00 D. P28.33


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Point of Indifference14. Ravine Ski Company recently expanded its manufacturing capacity to allow it to produce up to

15,000 pairs of cross-country skis of either the mountaineering model or the touring model.The sales department assures management that it can sell between 9,000 and 13,000 pairs(units) of either product this year. Because the models are very similar, Ravine Ski willproduce only one of the two models. The information below was compiled by the accountingdepartment.

Mountaineering ouring

Selling price per unit P880.00 P800.00Variable costs per unit P528.00 P528.00

Fixed costs will total P3,696,000 if the mountaineering model is produced but will be onlyP3,168,000 if the touring model is produced. Ravine Ski is subject to a 40% income tax rate.The total sales revenue at which Ravine Ski Company would make the same profit or lossregardless of the ski model it decided to produce isA. P8,800,000 C. P9,240,000B. P4,224,000 D. P6,864,000

15. Valley of Fire Corporation has one department that produces three replacement parts for thecompany. However, only one part can be produced in any month because of the adjustmentsthat must be made to the equipment. The department can produce up to 15,000 units of anyone of the three parts in each month. The company expresses the monthly after taxcost/volume/profit relationships for each part using an equation method. The format of the

equations and the equation for each replacement part are given below:(ATR) X ((SP VC) x (U) FC)ATR = after-tax rate VC = variable cost FC = fixed costsSP = selling price U = units

Part Part Equations

AL45 .6 ((P4.00 P1.25) (U) P33,400)BT65 .6 ( (P4.05 P2.55) (U) P15 ,0 00)G M17 .6 ( (P4.10 - P2.00 ) (U) - P22 ,3 65)

The production and unit sales volume level at which Valley will be indifferent as to whetherPart BT62 or GM17 is produced isA. 7,365 C. 10,380B. 4,092 D. 12,275

16. BM Motors, Inc. employs 40 sales personnel to market its line of luxuaverage car sells for P1,200,000 and a 6% commission is paid to the saleis considering a change to a commission arrangement that would pay salary of P24,000 per month plus a commission of 2% of the sales made bThe amount of total car sales at which BM Motors would be indifferentselect isA. P22,500,000 C. P24,000,000B. P30,000,000 D. P12,000,000

17. Zapatero, Inc. operates a chain of shoe stores around the country. Thstyles of shoes that are all sold at the same price. To encourage saaggressive in their sales efforts, the company pays a substantial sales pair of shoes sold. Sales personnel also receive a small basic salary.The following cost and revenue data relate to Store 9 and are typical of tsales outlets:

Selling price Variable expenses:

Invoice costs Sales commission

Fixed expenses per year:Rent Advertising Salaries

otal The company is considering eliminating sales commissions entirely in its fixed salaries by P2,142,000 annually.If this change is made, what will be the number of pairs of shoes to be sindifferent to commission basis?A. 25,300 C. 18,505B. 15,300 D. 21,000

Sensitivity Analysis18. If fixed costs increase while variable cost per unit remains constant, th

will beA. lower C. unchangedB. higher D. unpredictable


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19. Firm D and Firm S are competitors within the same industry. Firm D produces its productusing large amounts of direct labor. Firm S has replaced direct labor with investment inmachinery. Projected sales for both firms are fifteen percent less than in the prior year. Whichstatement regarding projected profits is true?A. Firm D will lose more profit than Firm S.B. Firm S will lose more profit than Firm D.C. Firm D and Firm S will lose the same amount of profit.D. Neither Firm D nor Firm S will lose profit.

20. Last month, Zamora Company had an income of P0.75 per unit with sales of 60,000 units.During the current month when the unit sales are expected to be only 45,000, there is a loss ofP1.25 per unit. Both the variable cost per unit and total fixed costs remain constant. The fixedcosts amounted toA. P80,000 C. P247,500B. P360,000 D. P210,000

21. The Liberal Marketing Co., is expecting an increase of fixed costs by P78,750 upon movingtheir place of business to the downtown area. Likewise it is anticipating that the selling priceper unit and the variable expenses will not change. At present, the sales volume necessary tobreakeven is P750,000 but with the expected increase in fixed costs, the sales volumenecessary to breakeven would go up to P975,000. Based on these projections, what were thetotal fixed costs before the increase of P78,750?A. P341,250 C. P183,750

B. P262,500 D. P300,000

22. Machan Co.s year-end income statement is as follows:Sales (20,000 units) P360,000Variable costs 220,000Contribution margin P140,000Fixed costs 105,000Net income P 35,000

Management is unhappy with the results and plans to make some changes for next year. Ifmanagement implements a new marketing program, fixed costs are expected to increase byP19,200 and variable costs to increase by P1 per unit. Unit sales are expected to increase by15 percent. What is the effect on income if the foregoing changes are implemented?A. Decrease of P21,200 C. Increase of P13,800B. I ncrease of P1,800 D. Increase of P14,800

23. Candyman Company is a wholesale distributor of candy. The compaconvenience, and drug stores in Metro Manila. Small but steady growtachieved by the company over the past few years while candy prices haThe company is formulating its plans for the coming fiscal year. Presenteused to project the current years after-tax net income of P110,400.Manufacturers of candy have announced that they will increase pricesaverage of 15% in the coming year due to increases in raw material (suetc.) and labor costs. Candyman Company expects that all other costs wrates or levels as the current year. Candyman is subject to 40 percent tax

Average selling price Average variable costs

Cost of candy Selling expenses

otal Annual ixed costs

Selling Administrative

otal Expected annual sales volume (390,000 boxes)

If net income after taxes is to remain the same after the cost of canincrease in the sales price is made, how many boxes of candy must CandA. 480,000 C. 27,600B. 400,000 D. 29,300

Margin of Safety24. Claremont Company had is a manufacturer of its only one product li

P400,000 for 2002 with a contribution margin ratio of 20 percent. Its marg10 percent. What are the companys fixed costs?A. P72,000 C. P288,000B. P80,000 D. P320,000

25. Lemery Corporation had sales of P120,000 for the month of May. It haratio of 25 percent, and after-tax return on sales of 6 percent. The compaconstant every month. If the tax rate is 40 percent, how much is the monthA. P36,000 C. P432,000B. P90,000 D. P360,000


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Degree of Operating Leverage26. A very high operating leverage indicates that a firm

A. has high fixed costsB. has a high net incomeC. has high variable costsD. is operating close to its breakeven point

27. The Didang Company has an operating leverage of 2. Sales for 2001 are P2,000,000 with acontribution margin of P1,000,000. Sales are expected to be P3,000,000 in 2002. Net income

for 2002 can be expected to increase by what amount over 2001?A. P250,000 C. P500,000B. 200 percent D. 40 percent

SituationalQuestions 28 thru 34 are based on the following information:Calamba Hospital operates a general hospital but rents space and beds to separate entities forspecialized treatment such as pediatrics, maternity, psychiatric, etc. Calamba charges eachseparate entity for common services to its patients like meals and laundry and for all administrativeservices such as billings, collections, etc. All uncollectible accounts are charged directly to theentity. Space and bed rentals are fixed for the year.For the entire year ended June 30, the Pediatrics Department at Calamba Hospital charged eachpatient an average of P65 per day, had a capacity of 60 beds, operated 24 hours per day for 365days, and had revenue of P1,138,800.

Expenses charged by the hospital to the Pediatrics Department for the year ended June 30 were:Basis of Allocation

Patient Days Bed CapacityDietary P 42,952Janitorial P 12,800Laundry 28,000Lab, other than direct charges to patients 47,800Pharmacy 33,800Repairs and maintenance 5,200 7,140General administrative services 131,760Rent 275,320Billings and collections 40,000Bad debt expense 47,000Other 18,048 .

P262,800 P453,000

The only personnel directly employed by the Pediatrics Department arenurses, and aides. The hospital has minimum personnel requirements bapatient days. Hospital requirements beginning at the minimum, expected leve

Annual Patient Days Aides Nurses Supervis

10,000 14,000 21 11 414 001 17,000 22 12 417,001 23,725 22 13 423,726 25,550 25 14 525,551 27,375 26 14 527,376 29,200 29 16 6

The staffing levels above represent full-time equivalents, and it should bPediatrics Department always employs only the minimum number of requirepersonnel.Annual salaries for each class of employee follow: supervising nurses, P18,0and aides, P5,000. Salary expense for the year ended June 30 for supervisinaides was P72,000, P169,000, and P110,000, respectively.The Pediatrics Department operated at 100% capacity during 111 days of estimated that during 90 of these capacity days, the demand average 17capacity and even went as high as 20 patients more on some days. The hosp20 beds available for rent for the coming fiscal year.

28. The variable expense per patient day is

A. P15.08 C. P15.00B. P12.50 D. P50.00

29. The contribution margin per patient day isA. P49.92 C. P50.00B. P52.50 D. P52.00

30. How many patient days are necessary to cover fixed costs for besupervisory nurses?A. 9,500 C. 12,500B. 11,500 D. 10,500

31. The number of patient days needed to cover total costs isA. 14,200 C. 15,820B. 15,200 D. 14,220


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32. If the Pediatrics Department rented an additional 20 beds and all other factors remain thesame as in the past year, what would be the increase in revenue?A. P99,450 C. P105,450B. P87,750 D. P89,750

33. Continuing to consider the 20 additional rented beds, the increase in total variable cost appliedper patient day isA. P22,935 C. P22,965B. P22,950 D. P23,935

34. What is the increased fixed cost applied for bed capacity, given the increased number ofbeds?A. P151,000 C. P147,000B. P173,950 D. P152,000

Questions 35 thru 37 are based on the following information.Ms. Casserole started a pizza restaurant in 1998. For this purpose a building was rented for P400per month. Two women were hired to work full time at the restaurant and six college students werehired to work 30 hours per week delivering pizza. This level of employment has been consistent.An outside accountant was hired for tax and bookkeeping purposes, for which Ms. Casserole paysP300 per month. The necessary restaurant equipment and delivery cars were purchased withcash. Ms. Casserole has noticed that expenses for utilities and supplies have been ratherconstant. Ms. Casserole increased her business between 1998 and 2001. Profits have more than

doubled since 1998. Ms. Casserole does not understand why profits have increased faster thanvolume.A projected income statement for the year ended December 31, 2002, prepared by the accountant,is shown below:

Sales P95,000Cos of food sold P28,500Wages & fringe benefits:

Restaurant help 8,150Delivery help 17,300

Rent 4,800Accounting services 3,600Depreciation:

Delivery equipment 5,000

Restaurant equipment 3,000

Utilities 2,325Supplies 1,200 Net income before taxes Income taxes (40%) Net income

Note: The average pizza sells for P2.50.

35. What is the tax shield on the noncash fixed costs?A. P3,200 C. P3,400

B. P14,950 D. P5,400

36. What is the breakeven point in number of pizzas that must be sold?A. 25,929 C. 18,150B. 23,569 D. 42,114

37. What is the cash flow breakeven point in number of pizzas that must be sA. 19,529 C. 12,990B. 21,284 D. 10,773

VARIABLE COSTING VS. ABSORPTION COSTINGAbsorption Costing38. When a firm prepares financial reports by using absorption costing, it may

A. profits will always increase with increase in sales.

B. profits will always decrease with decreases in sales.C. profit may decrease with increased sales even if there is no change

costs.D. decreased output and constant sales result in increased profit.

39. The Bush Company has provided information concerning its projections fofollows:

Net sales Fixed manufacturing costs

Bush projects variable manufacturing costs of 60% of net sales. Assinventory, what will the projected cost of goods sold be?A. P5,000,000 C. P7,000,000B. P6,000,000 D. P8,000,000


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40. Colger Company manufactures a single product using standard costing. Variable productioncosts are P12 and fixed production costs are P125,000. Colger uses a normal activity of12,500 units to set its standard costs. Colger began the year with 1,000 units in inventory,produced 11,000 units, and sold 11,500 units. The standard costs of goods sold underabsorption costing would beA. P115,000 C. P242,000B. P132,000 D. P253,000

41. The Trinkets Company estimated the following data for the coming year:

Fixed manufacturing costs P565,000Variable production costs per peso of sales

Materials P0.125Direct labor 0.150Variable overhead 0.075

Variable selling costs per peso of sales 0.150Trinkets estimates its sales for the coming year to be P2,000,000.The expected cost of goods sold for the coming year isA. P1,265,000 C. P1,115,000B. P1,565,000 D. P 700,000

42. Nirvana Co. employs a normal (nonstandard) absorption cost system. The information belowis from the financial records of the company for the year.

Total manufacturing costs were P2,500,000.

Costs of goods of manufactured was P2,425,000. Applied factory overhead was 30 percent of total manufacturing costs.

Factory overhead was applied to production at a rate of 80% of direct labor cost.

Work-in-process inventory at January 1 was 75% of work-in-process inventory atDecember 31.

What are the amounts/value of t he following cost elements and inventory?

Direct labor Direct mater ia ls Work- in-process inventory

A. P750,000 P750,000 P225,000B. P937,500 P812,500 P225,000C. P937,500 P812,500 P300,000D. P750,000 P750,000 P300,000

43. Black Forest, Inc. began operations on January 3. Standard costs wereJanuary assuming a normal production volume of 160,000 units. Hoproduced only 140,000 units of product and sold 100,000 units at a selliunit during the year. Variable costs totaled P7,000,000, of which 60% we40% were selling. Fixed costs totaled P11,200,000, of which 50% wer50% were selling. Black Forest had no raw materials or work-in-prDecember 31. Actual input prices and quantities per unit of product were Using absorption costing, Black Forests income statement would show:

Cost of Goods Sold at Standard Cost Overhead Vo

A. P8,200,000 P800,B. P7,200,000 P800,C. P6,500,000 P700,D. P7,000,000 P700,

Absorption Costing & Variable Costing44. Southseas Corp. uses a standard cost system. The standard cost p

products are as follows:

Direct Materials Direct labor Factory overhead

Variable F ixed ( ba sed on a n orma l ca pa ci ty o f 10,000 un its)

otal

Beginning inventory Production Units sold (selling price P50)

Actual costs:Direct materials Direct labor Variable overhead Fixed Variable selling and adm. Fixed selling and adm.

Variances are closed to cost of sales monthly


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How much are the net income under absorption costing and variable costing methods?

A. B. C. D.

Absorption P144,000 P143,000 144,000 142,000Variable 143,000 144,000 142,000 144,000

45. Lord Industries manufactures a single product. Variable production costs are P10 and fixedproduction costs are P75,000. Lord uses a normal activity of 10,000 units to set its standardcosts. Lord began the year with no inventory, produced 11,000 units and sold 10,500 units.The volume variance under each product costing are:

A. B. C. D.

Under Absorption Costing P3,750 P3,750 P7,500 P7,500Under Variable Costing P 0 P7,500 P0 P0

Absorption Costing Income vs. Variable Costing Income46. Simple Corp. produces a single product. The following cost structure applied to their first year

of operations, 2000:

Variable Costs per Unit Annual Fixed Costs

SG&A P2.00 P14,000Production 4.00 P20,000

Assume that during 2000 Simple Corp. manufactured 5,000 units and sold 3,800. There wasno beginning or ending work-in-process inventory. How much larger or smaller would SimpleCorp.s income be if it uses absorption rather than variable costing?

A. The absorption costing income would be P6,000 largerB. The absorption costing income would be P6,000 smallerC. The absorption costing income would be P4,800 larger*D. The absorption costing income would be P4,000 smaller

STANDARD COSTING & VARIANCE ANALYSISBasic Concepts47. Which of the following is a difference between a static budget and a flexible budget?

A. A flexible budget includes only variable costs; a static budget includes only fixed costs.B. A flexible budget includes all costs, a static budget includes only fixed costs.C. A flexible budget gives different allowances for different levels of activity, a static budget

does not.D. There is no difference between the two.

Setting Standards48. Which of the following statements about the selection of standards is true?

A. Ideal standards tend to extract higher performance levels since tsomething to live up to.

B. Currently attainable standards may encourage operating inefficiencieC. Currently attainable standards discourage employees from

performance potential.D. Ideal standards demand maximum efficiency which may leave wo

causing a decline in performance.

49. The per-unit standard cost for variable overhead is normally based on theA. standard quantity of an input factor used in a unit of product.B. actual variable overhead cost incurred at the achieved level of producC. budgeted total cost for variable overhead divided by the number of

produced.D. ratio of fringe benefits to the basic cost of labor.

50. Relevant Company had the following flexible budget for 2003 at 10030,000 direct labor hours.

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead

What is the total manufacturing overhead application rate if the Relevaoperate at 80 percent of the stated capacity?A. P24.00 C. P24.60B. P27.00 D. P21.60

Raw Materials Variances51. Derby Co. uses a standard costing system in connection with the manuf

shirts. Each unit of finished product contains 2 yards of direct matepercent direct material spoilage calculated on input quantities occurs duriprocess. The cost of the direct materials is P120 per yard.The standard direct material cost per unit of finished product isA. P192 C. P288B. P240 D. P300


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52. Silver Company has a standard of 15 parts of Component R costing P1.50 each. Silverpurchased 14,910 units of R for P22,145. Silver generated a P220 favorable price varianceand a P3,735 favorable usage variance. If there were no changes in the component ofinventory, how many units of finished product were produced?A. 994 units C. 1,725 unitsB. 1,160 units D. 828 units

53. The standard usage for raw materials is 5 pounds at P40.00 per pound. Cave Company spentP131,200 in purchasing 3,200 pounds. Cave used 3,150 pounds to produce 600 units of

finished product. The material quantity variance isA. P6,000 unfavorable C. P5,200 unfavorableB. P3,200 unfavorable D. P2,000 unfavorable

54. Ramie has a standard price of P5.50 per pound for materials. Julys results showed anunfavorable material price variance of P44 and a favorable quantity variance of P209. If 1,066pounds were used in production, what was the standard quantity allowed for materials?A. 1,104 C. 1,074B. 1,066 D. 1,100

Direct Labor Variance55. Anne had a P750 unfavorable direct labor rate variance and an P800 favorable efficiency

variance. Anne paid P7,150 for 800 hours of labor. What was the standard direct labor wagerate?

A. P8.94 C. P7.94B. P8.00 D. P7.80

56. The flexible budget for the month of May 2002 was for 9,000 units with direct material at P15per unit. Direct labor was budgeted at 45 minutes per unit for a total of P81,000. Actualoutput for the month was 8,500 units with P127,500 in direct material and P77,775 in directlabor expense. Direct labor hours of 6,375 were actually worked during the month. Varianceanalysis of the performance for the month of May would show a(n)A. favorable material quantity variance of P7,500B. unfavorable direct labor efficiency variance of P1,275C. unfavorable material quantity variance of P7,500D. unfavorable direct labor rate variance of P1,275

Two-Way Overhead Variances57. Karla Company uses an annual cost formula for overhead of P72,000 +

labor hour worked. For the upcoming month Karla plans to manufactureunit requires five minutes of direct labor. Karlas budgeted overhead for thA. P12,800 C. P84,800B. P18,800 D. P774,000

58. If actual overhead is P14,000, overhead applied is P13,400, and overhstandard hours allowed is P15,600, then the overhead controllable varianc

A. P600F C. P1,600FB. P2,200U D. P1,600U

59. Universal Company uses a standard cost system and prepared the followcapacity for January

Direct labor hours Variable factory OH Fixed factory OH Total factory OH per DLH

Actual data for January were as follows:Direct labor hours worked Total factory OH Standard DLHs allowed for capacity attained

Using the two-way analysis of overhead variance, what is the cont

January?A. P3,000 F C. P9,000 FB. P5,000 F D. P10,500 U

60. The Terrain Company has a standard absorption and flexible budgetingtwo-way analysis of overhead variances. Selected data for the June prod

Budgeted fixed factory overhead costs Actual factory overhead Variable factory overhead rater per DLH Standard DLH Actual DLH

The budget (controllable) variance for June isA. P1,000 favorable C. P6,000 favorableB. P1, 000 unfavorable D. P6, 000 unfavorable


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61. South Company has total budgeted fixed costs of P75,000, Actual production of 19,500 unitsresulted in a P3,000 favorable volume variance. What normal capacity was used to determinethe fixed overhead rate?A. 16,500 C. 20,313B. 18,750 D. 20,325

62. CTV Company has a standard fixed cost of P6 per unit. At an actual production of 8,000 unitsa favorable volume variance of P12,000 resulted. What were total budgeted fixed costs?A. P36,000 C. P60,000

B. P48,000 D. P75,000

63. The Pinatubo Company makes and sells a single product and uses standard costing. DuringJanuary, the company actually used 8,700 direct labor-hours (DLHs) and produced 3,000 unitsof product. The standard cost card for one unit of product includes the following:

Variable factory overhead: 3.0 DLHs @ P4.00 per DLH.Fixed factory overhead: 3.0 DLHs @ P3.50 per DLH

For January, the company incurred P22,000 of actual fixed overhead costs and recorded aP875 favorable volume variance.The budgeted fixed overhead cost for January isA. P31,500 C. P32,375B. P30,625 D. P33,250

Questions 64 & 65 are based on the following information.

Lucky Company sets the following standards for 2003:Direct labor cost (2 DLH @ P4.50) P 9.00Manufacturing overhead (2 DLH @ P7.50) 15.00

Lucky Company plans to produce its only product equally each month. The annual budget foroverhead costs are:

Fixed overhead P150,000Variable overhead 300,000Normal activity in direct labor hours 60,000

In March, Lucky Company produced 2,450 units with actual direct labor hours used of 5,050.Actual overhead costs for the month amounted to P37,245 (Fixed overhead is as budgeted.)

64. The amount of overhead volume variance for Lucky Company isA. P250 unfavorable C. P750 UnfavorableB. P500 unfavorable D. P375 Unfavorable

65. Using the preceding data for Lucky Company, the controllable overhead vA. P505 favorable C. P245 favorableB. P505 unfavorable D. P245 unfavorable

Three-Way Overhead Variances66. Arlene had an P18,000 unfavorable volume variance, a P25,000

overhead spending variance, and P2,000 total under applied overheadbudget variance isA. P41,000 favorable C. P41,000 Unfavorable

B. P45,000 favorable D. P45,000 Unfavorable

Four-Way Overhead Variances67. Franklin Glass Works production budget for the year ended November

on 200,000 units. Each unit requires two standard hours of labor fooverhead was budgeted at P900,000 for the year, and the fixed overheato be P3.00 per unit. Both fixed and variable overhead are assigned tbasis of direct labor hours. The actual data for the year ended Novpresented below.

Actual production in units Actual direct labor hours Actual variable overhead Actual fixed overhead

Franklins variable overhead efficiency variance for the year ended Novem

A. P33,000 unfavorable C. P66,000 unfavorableB. P35,520 favorable D. P33,000 favorable

68. The Virgin Island Company has standard variable costs as follows:

Materials, 3 pounds at P4.00 per pound Labor, 2 hours P10.00 per hour Variable overhead, P7.50 per labor hour

otal

During September, Virgin Island produced 6,000 units, using 11,560 lawage of P113,870 and incurring P88,600 in variable overhead. Thvariances are:

A. B. C.

Spending P1,900 favorable P1,900 unfavorable P1,400 favorable Efficiency P3,300 unfavorable P3,300 favorable P1,900 favorable


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69. Fixed manufacturing overhead was budgeted at P500,000 and 25,000 direct l abor hours werebudgeted. If the fixed overhead volume variance was P12,000 favorable and the fixedoverhead spending variance was P16,000 unfavorable, fixed manufacturing overhead appliedmust beA. P516,000 C. P504,000B. P512,000 D. P496,000

70. Mulvey Company derived the following cost relationship from a regression analysis of itsmonthly manufacturing overhead cost:

C = P80,000 + P12MWhere C = monthly manufacturing overhead cost

M = machine hoursThe standard error of the estimate of the regression is P6,000.The standard time required to manufacture one six-unit case of Mulveys single product is 4machine hours. Mulvey applies manufacturing overhead to production on the basis ofmachine hours and its normal annual production is 50,000 cases.Mulveys estimated variable manufacturing overhead cost for a month in which scheduledproduction is 5,000 cases would beA. P80,000 C. P240,000B. P320,000 D. P360,000

Questions 71 thru 73 are based on the following information.The Lustre Company produces its only product, Kool Chewing Gum. The standard overhead cost

for one pack of the product follows:Fixed overhead (1.50 hours at P18.00) P27.00Variable overhead (1.50 hours at P10.00) 15.00

otal application rate P42.00

Lustre uses expected volume of 20,000 units. During the year, Lustre used 31,500 direct laborhours for the production of 20,000 units. Actual overhead costs were P545,000 fixed andP308,700 variable.

71. The amount of variable overhead spending variance isA. P6,300 Favorable C. P6,300 UnfavorableB. P 8,700 Favorable D. P8,700 Unfavorable

72. The total overhead controllable variance isA. P13,700 Favorable C. P13,700 Unfavorable

B. P 8,700 Favorable D. P 8, 700 Unfavorable

73. The overhead efficiency variance isA. P22,500 Favorable C. P22,500 UnfavorableB. P15,000 Favorable D. P15,000 Unfavorable

Gross Profit Variance Analysis74. Vicki Division operates as a revenue center and sells only one product. D

as follows:

Actual

Sales in units 10,000

Selling price per unit P11 Variable expense per unit

What are the price variance and price volume variance?

A. B. C.

Sa le s Pric e Vari an ce P1 0,00 0 F P 5 ,00 0 F P 5,00 0Pr ice Vol ume Vari an ce P 5,00 0 F P1 0,00 0 U P1 0,00 0

RESPONSIBILITY ACCOUNTING & TRANSFER PRICINGBasic Concepts75. Controllable costs are costs that

A. are likely to respond to the amount of attention devoted to them by a B. are governed mainly by past decisions that established the presen

and organizational capacity and that only change slowly in response

capacity.C. will be unaffected by current managerial decisions.D. fluctuate in total in response to small change in the rate of utilization o

76. Which of the following does not apply to the content of managerial reportsA. Reporting standard is relevant to the decision to be made.B. May extend beyond double-entry accounting system.C. Pertain to subunits of the entity and may be very detailed.D. Pertains to the entity as a whole and is highly aggregated.*

Return on Investment77. If the investment turnover decreased by 10 percent and ROS decrease

ROI wouldA. increase by 30% C. decrease by 37%

B. decrease by 10% D. decrease by 33.3%


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78. Return on investment (ROI) is a term often used to express income earned on capital investedin a business unit. A companys ROI would be increased if salesA. increased by the same peso amount as expenses and total assets increased.B. remained the same and expenses were reduced by the same peso amount that total

asset increased.C. decreased by the same peso amount that expenses increased.D. and expenses increased by the same percentage that total assets increased.

79. If the investment turnover increased by 30% and ROS decreased by 20%, the ROI would

A. increase by 4% C. increase by 30%B. increase by 6% D. decrease by 50%

Residual Income80. Jar Division of Handy, Inc. expects the following result for 2004:

Unit sales 70,000Unit selling price P 10Unit variable cost P 4Total fixed costs P300,000Total investment P500,000

The minimum required ROI is 15 percent, and divisions are evaluated on residual income. Aforeign customer has approached Jars manager with an offer to buy 10,000 units at P7 each.If Jar accepts the order, it would not lose any of the 70,000 units at the regular price.Accepting the order would increase fixed costs by P10,000 and investment by P40,000.

What is the minimum price that Jar could accept for the order and still maintain its expectedresidual income?A. P5.00 C. P4.75B. P5.60 D. P9.00

Return on Investment & Residual Income81. Scotch Co. has the following results for the year:

Sales P740,000Variable expenses 260,000Fixed expenses 300,000

Total divisional assets average P1,000,000. The companys minimum required rate of returnis 14 percent. The residual income and return on investment for Scotch are:

A. B. C. D.

Residual Income P36,000 P40,000 P36,000 P40,000

Return on Investment 36% 18% 18% 36%

82. The following information relates to two projects of Rica Corporation.

Project A

Operating income P2,500,000 Residual income P 500,000 ROI 10% Return on residual investment 2%

A bonus of P50,000 will be paid to the manager whose project contributeperformance of the firm. The P50,000 bonus should go to the manager oA. project A because the residual income is higherB. project B because the return on investment is higherC. project A because it was a larger, more complex projectD. project B because the return on residual investment is higher*

Transfer Pricing83. An appropriate transfer price between two divisions of the Star Corporatio

from the following data:Fabrication Division

Market price of subassembly Variable cost of subassembly Excess capacity (in units)

Assembling DivisionNumber of units needed

What is the natural bargaining range for the two divisions?

A. Between P20 and P50 C. Any amount less thanB. Between P50 and P70 D. 50 is the only accepta

PRODUCT PRICING84. In a cost-based pricing system the markup should cover

I. Selling and administrative expensesII. Desired profitIII. Manufacturing costA. I, II, and III C. I and III onlyB. I and II only D. II and III only


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RELEVANT COSTINGBasic Concepts85. The potential benefit that may be obtained from following an alternative course of action is

calledA. opportunity benefit C. relevant costB. opportunity cost D. sunk cost

86.Opportunity costs:A. Are treated as period costs under variable costing.

B. Have already been incurred as a result of past action.C. Are benefits that could have been obtained by following another course of action.D. Do not vary among alternative courses of action.

87. The Auto Division of Fly Insurance employs three claims processors capable of processing5,000 claims each. The division currently processes 12,000 claims. The manager hasrecently been approached by two sister divisions. Division A would like the auto division toprocess approximately 2,000 claims. Division B would like the auto division to processapproximately 5,000 claims. The Auto Division would be compensated Division A or DivisionB for processing these claims. Assume that these are mutually exclusive alternatives. Claimsprocessor salary cost is relevant forA. division A alternative onlyB. division B alternative onlyC. both Division A and Division B alternatives

D. neither Division A nor Division B alternatives

Sell as is or Process-Further88. Ottawa Corporation produces two products from a joint process. Information about the two

joint products follows:

Product X Product Y

Anticipated production 2,000 lbs 4,000 lbsSelling price per lb. at split-off P30 P16Additional processing costs/lb after split-off (all variable) P15 P30Selling price/lb after further processing P40 P50

The cost of the joint process is P85,000.Ottawa currently sells both products at the split-off point. If Ottawa makes decisions whichmaximizes profit, Ottawas profit will increase byA. P16,000 C. P50,000

B. P4,000 D. P10,000

Obsolete Inventories89. The cost to manufacture an unfinished unit is P40 (P30 variable and P1

price per unit is P50. The company has unused production capacity andunits could be finished and sold for P65 with an increase in variable costsadditional net income per unit to be gained by finishing the unit?A. P3 C. P15B. P10 D. P12

Profit Maximization

90. Fe Company has only 25,000 hours of machine time each month to products. Product X has a contribution margin of P50 and Product Y has of P64. Product X requires 5 machine hours and Product Y, 8 hours. If 80% of its machine time to the product that will provide the most incomemonthly contribution margin ofA. P250,000 C. P210,000B. P240,000 D. P200,000

91. Geary Manufacturing has assembled the following data pertaining to two p

Bl en de r

Direct materials P 6 Direct labor 4 Factory overhead @ P16 per hour 16 Cost if purchased from an outside

supplier

20

Annual demand (units) 20,000

Past experience has shown that the fixed manufacturing overhead compcost per machine hour averages P10. Geary has a policy of filling all sameans purchasing units from outside suppliers.If 50,000 machine hours are available, and Geary Manufacturing desiresstrategy, it should produceA. 25,000 electric mixers, and purchase all other units as neededB. 20,000 blenders and 15,000 electric mixers, and purchase all other uC. 20,000 blenders and purchase all other units as neededD. 28,000 electric mixers and purchase all other units as needed


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92. ABC Electronics has the following standard costs and other data:

Pa rt Beta Par t Z eta

Direct materials P 4.00 P80.00Direct labor 10.00 47.00Factory overhead 40.00 20.00Unit standard cost P54.00 P147.00Units needed per year 6,000 8,000Machine hours per unit 4 2Unit cost if purchased P50 P150.00

In past years, ABC has manufactured all of its required components; however, this year only30,000 hours of otherwise idle machine time can be devoted to the production of components.Accordingly, some of the parts must be purchased from outside suppliers. In producing parts,factory overhead is applied at P10 per standard machine hour. Fixed capacity costs that willnot be affected by any make-or-buy decision represent 60% of the applied overhead.The 30,000 hours available machine time are to be scheduled so that ABC realizes maximumpotential cost savings. The relevant unit production costs that should be considered in thedecision to schedule machine time are:A. P54.00 for Beta and P147.00 for Zeta C. P14.00 for Beta and P127.00 for ZetaB. P50.00 for Beta and P150.00 for Zeta D. P30.00 for Beta and P135.00 for Zeta

Questions 93 & 94 are based on the following information.Brynles Manufacturing Company produces two products for which the following data have beentabulated. Fixed manufacturing cost is applied at a rate of P1.00 per machine hour.

Per Unit XY-7 BD-4

Selling price P4.00 P3.00Variable manufacturing cost P2.00 P1.50Fixed manufacturing cost P0.75 P0.20Variable selling cost P1.00 P1.00

The sales manager has had a P160,000 increase in the budget allotment for advertising and wantsto apply the money to the most profitable product. The products are not substitutes for one anotherin the eyes of the companys customers.The manager may devote the entire P160,000 to increased advertising for either XY-7 or BD-4.93. The minimum increase in peso sales of either XY-7 or BD-4 required to offset the increased

advertising is

A. B. C. D.

XY-7 P160,000 P640,000 P 80,000 P 80,000

BD-4 P320,000 P960,000 P960,000 P320,000

94. Suppose Brynles has only 100,000 machine hours that can be made additional units of XY-7 and BD-4. If the potential increase in sales unresulting from advertising is far in excess of this production capacity, whicadvertised and what is the estimated increase in contribution margin earnA. Product XY-7 should be produced, yielding a contribution margin of PB. Product XY-7 should be produced, yielding a contribution margin of PC. Product BD-4 should be produced, yielding a contribution margin of PD. Product BD-4 should be produced, yielding a contribution margin of P

Special Order95. An opportunity cost commonly associated with a special order is

A. the contribution margin on lost salesB. the variable costs of the orderC. additional fixed related to the increased outputD. any of the above

96. Jap Companys unit cost of manufacturing and selling a given item a10,000 units per month are:

Manufacturing costsDirect materials Direct labor Variable overhead Fixed overhead

Selling expensesVariable Fixed

The company desires to seek an order for 5,000 units from a foreign cuselling expenses will be reduced by 40%, but the fixed costs for obtainP20,000. Domestic sales will not be affected by the order.The minimum break-even price per unit to be considered on this special sA. P71 C. P69B. P75 D. P84


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Make or Buy97. For the past 12 years, the Blue Company has produced the small electric motors that fit into its

main product line of dental drilling equipment. As material costs have steadily increased, thecontroller of the Blue Company is reviewing the decision to continue to make the small motorsand has identified the following facts:1. The equipment used to manufacture the electric motors has a book value of P150,000.2. The space now occupied by the electric motor manufacturing department could be used

to eliminate the need for storage space now being rented.3. Comparable units can be purchased from an outside supplier for P59.75.

4. Four of the persons who work in the electric motor manufacturing department would beterminated and given eight weeks severance pay.

5. A P10,000 unsecured note is still outstanding on the equipment used in the manufacturingprocess.

Which of the items above are relevant to the decision that the controller has to make?A. 1, 3, and 4 C. 2, 3, 4, and 5B. 2, 3, and 4 D. 1, 2, 4, and 5

98. Buena Corporation operates a plant with a productive capacity to manufacture 10,000 units ofits product a year. The following information pertains to the production costs at capacity:

Variable costs P 80,000Fixed costs 120,000

Total costs P200,000A supplier has offered to sell 8,000 units to Buena annually. Assume no change in the fixed

costs. What is the price per unit that makes Buena indifferent between the Make and Buyoptions?A. P8 C. P20B. P12 D. P10

99. Elly Industries is a multi-product company that currently manufactures 30,000 units of PartMR24 each month for use in production. The facilities now being used to produce Part MR24have a fixed monthly costs of P150,000 and a capacity to produce 84,000 units per month. IfElly were to buy Part MR24 from an outsiDe supplier, the facilities would be idle, but its fixedcosts would continue at 40 percent of their present amount. The variable production costs ofPart MR24 are P11 per unit.If Elly Industries is able to obtain Part MR24 each month, it would realize a net benefit bypurchasing Part MR24 from an outside supplier only if the suppliers unit price is less thanA. P14.00 C. P16.00

B. P11.00 D. P13.00

100.Below are a companys monthly unit costs to manufacture and market a pManufacturing Costs:

Direct materials Direct labor Variable indirect Fixed indirect

Marketing Costs:Variable Fixed

The company must decide to continue making the product or buy it fromThe supplier has offered to make the product at the same level of quality tmake it. Fixed marketing costs would be unaffected, but variable markreduced by 30% if the company were to accept the proposal. What is tper unit that the company can pay the supplier without decreasing its opeA. P8.50 C. P7.75B. P6.75 D. P6.90

101.Cable Company produces 1,000 units of Part W per month. The total mthe part are as follows:

Direct materials Direct labor Variable overhead Fixed overhead

otal manufacturing costs An outside supplier has offered to supply the part at P30 per unit. It is ethe fixed overhead assigned to Part W will no longer be incurred if the compart from the outside supplier. If Cable Company purchases 1,000 unitoutside supplier per month, then its monthly operating income willA. decrease by P4,000 C. decrease by P20,000B. increase by P1,000 D. increase by P20,000

102.The Rural Cooperative, Inc. produces 1,000 units of Part M permanufacturing costs of the part are as follows:

Direct materials Direct labor Variable overhead Fixed overhead

otal manufacturing cost


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An outside supplier has offered to supply the part at P30 per unit. It is estimated that 20% ofthe fixed overhead assigned to Part M will no longer be incurred if the company purchases thepart from the outside supplier. If Rural Cooperative purchases 1,000 units of Part M from theoutside supplier per month, then its monthly operating income willA. decrease by P4,000 C. decrease by P20,000B. increase by P1, 000 D. increase by P20,000

Keep or Drop103.Indicate which of the following costs would be avoided if a segment is eliminated.

1. variable manufacturing costs2. direct fixed costs3. common fixed costs4. variable selling costs5. direct fixed selling costs6. common fixed selling costsA. 2, 3, 5, 6 C.B. 1, 2, 4, 5* D. 1, 2, 3, 4, 54, 5, 6

104.BEA Industries produces two products. Information about the products is as follows:

Item 38B Item 40F

Units produced and sold 1,000 4,000Selling price per unit P 25 P 20Variable expenses per unit P 15 P 12

The companys fixed costs totaled P40,000, of which P8,000 can be avoided if Item 38B isdropped and P25,000 can be avoided if Item 40F is dropped. Product margin for Item 40F isA. P3,200 C. P(2,000)B. P7,000 D. P10,000

Shut Down Point105.Bulusan Company normally produces and sells 30,000 units of E14 each month. E14 is a

small electrical relay used in the automotive industry as a component part in various products.The selling price is P22 per unit, variable costs are P14 per unit, fixed manufacturing overheadcosts total P150,000 per month, and fixed selling costs total P30,000 per month.Employment-contract strikes in the companies that purchase the bulk of the E14 have causedBulusan Companys sales to temporarily drop to only 9,000 units per month. BulusanCompany estimates that the strikes will last for about two months, after which time sales ofE14 should return to normal. Due to the current low level of sales, however, Bulusan

Company is thinking about closing down its own plant during the two months that the strikes

are on. If Bulusan Company does close down its plant, it is estimated thaoverhead costs can be reduced to P105,000 per month and that fixed reduced by 10%. Start-up costs at the end of the shutdown period wouldBulusan Company uses just-in-time production method, no inventories areAt what level of unit sales for the two-month period should Bulusan Cobetween closing the plant or keeping it open?A. 11,000 C. 10,000B. 24,125 D. 8,000

CAPITAL BUDGETINGBasic Concepts106.If Sol Company expects to get a one-year loan to help cover the initia

project, the analysis of the project shouldA. offset the loan against any investment in inventory or receivable requB. show the loan as an increase in the investmentC. show the loan as a cash outflow in the second year of the projects lifD. ignore the loan

107.When compared Net Present Value method to Internal Rate of Return in tof cash flows, NPV is better than IRR. What are the reinvestment rate for

Net Present Value method Internal Rate of Retu

A. Discount Rate Discount RateB. Discount Rate IRR

C. IRR IRRD. IRR Discount Rate

Accounting Rate of Return108.Tamaraw Company is negotiating to purchase equipment that would cos

expectation that P40,000 per year could be saved in after-tax cash costs iacquired. The equipments estimated useful life is 10 years, with no salvbe depreciated by the straight-line method. Tamaraws minimum desirepercent. Present value of an annuity of 1 at 12 percent for 10 periods isof 1 due in 10 periods at 12 percent is 0.322.The average accrual accounting rate of return during the first year of asseA. 20.0 percent C. 10.0 percentB. 10.5 percent D. 40.0 percent


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109.The Fields Company is planning to purchase a new machine which it will depreciate, for bookpurposes, on a straight-line basis over a ten-year period with no salvage value and a full yearsdepreciation taken in the year of acquisition. The new machine is expected to produce cashflow from operations, net of income taxes, of P66,000 a year in each of the next ten years.The accounting (book value) rate of return on the initial investment is expected to be 12%.How much will the new machine cost?A. P300,000 C. P660,000B. P550,000 D. P792,000

110.Green Meadows Foundation (GMF), a tax-exempt organization, invested P200,000 in a five-year project at the beginning of the year. GMF estimates that the annual cash savings fromthis project will amount to P65,000. Tax and book depreciation on the project will be P40,000per year for five years. On investments of this type, GMFs desired rate of return is 12%.Information on present value factors is as follows:

At 12% At 14% At 16%

Present value of P1 for 5 periods 0.57 0.52 0.48Pres en t va lue of an an nu ity o f 1 for 5 pe ri od s 3.6 3 .4 3.3

For the projects first year, GMFs accounting rate of return, based on the projects averagebook value would beA. 14.4% C. 12.5%B. 13.9% D. 12.0%

Payback Period

111. The payback method assumes that all cash inflows are reinvested to yield a return equal toA. zero C. the Time-Adjusted-Rate-of-ReturnB. the Discount Rate D. the Cost-of-Capital

Bailout Period112.A project costing P1,800,000 is expected to produce the following annual cash flows (after tax)

and salvage value:

Year Net cash inflow Salvage value

1 500,000 800,0002 500,000 600,0003 600,000 500,0004 800,000 400,0005 700,000 300,000

What is the bailout period for the project?A. 3.25 yrs. C. 2.73 yrsB. 2.5 yrs D. 2.4 yrs.

Net Present Value113.Panama Insurance Companys management is considering an advertisin

require an initial expenditure of P165,500 and bring in additional sales oveThe cost of advertising is immediately recognized as expense. The projerevenue in Year 1 is P75,000, with associated expenses of P25,000.

revenue and expenses from the advertising program are projected to inceach year. Panama Insurance Companys tax rate is 40 percent.The present value of 1 at 10 percent, end of each period:

Periods Present value Fac

1 0.909092 0.826453 0.751314 0.683015 0.62092

The net present value of the advertising program would beA. P37,064 C. P(37,064)B. P29,136 D. P(29,136)

114.For P450,000, Roxas Corporation purchased a new machine with an es

five years with no salvage value. The machine is expected to prodoperations, net of 40 percent income taxes, as follows:

First year Second year Third year Fourth year Fifth year

Roxas will use the sum-of-the-years-digits method to depreciate the newFirst year Second year Third year Fourth year Fifth year


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The present value of 1 for 5 periods at 12 percent is 3.60478. The present values of 1 at 12percent at end of each period are:

End of: Period 1 0.8928, Period 2 - 0.79719, Period 3 - 0.71178, Period 4 - 0.63552,Period 5 - 0.56743

Had Roxas used straight-line method of depreciation, what is the difference in net presentvalue provided by the machine at a discount rate of 12 percent?A. Increase of P9,750 C. Decrease of P24,376B. Decrease of P9,750 D. Increase of P24,376

Profitability Index115.A project has a NPV of P15,000 when the cutoff rate is 10%. The annual cash flows are

P20,505 on an investment of P50,000. the profitability index for this project isA. 1.367 C. 2.438B. 3.333 D. 1.300

Internal Rate of Return116.Hilltop Company is planning to invest P80,000 in a three-year project. Hilltops expected rate

of return is 10%. The present value of P1 at 10% for one year is .909, for years is .826, andfor three years is .751. The cash flow, net of income taxes, will be P30,000 for the first year(present value of P27,270) and P36,000 for the second year (present value of P29,736).Assuming the rate of return is exactly 10%, what will the cash flow, net of income taxes, be forthe third year?A. P17,268 C. P22,994

B. P22,000 D. P30, 618

117.Care Products Company is considering a new product that will sell for P100 and have avariable cost of P60. Expected volume is 20,000 units. New equipment costing P1,500 andhaving a five-year useful life and no salvage value is needed, and will be depreciated using thestraight-line method. The machine has cash operating costs of P20,000 per year. The firm is inthe 40 percent tax bracket and has cost of capital of 12 percent. The present value of 1, endof five periods is 0.56743; present value of annuity of 1 for 5 periods is 3.60478.Suppose the 20,000 estimated volume is sound, but the price is in doubt. What is the sellingprice (rounded to nearest peso) needed to earn a 12 percent internal rate of return?A. P81.00 C. P70.00B. P85.00 D. P90.00

118.Payback Company is considering the purchase of a copier machine for machine will be expected to be economically productive for 4 years. Theend of 4 years is negligible. The machine is expected to provide 15 pereturn. The company is subject to 40 percent income tax rate.The present value of an ordinary annuity of 1 for 4 periods is 2.85498.In order to realize the IRR of 15 percent, how much is the estimated befobe provided by the machine?A. P17,860 C. P25,000B. P15,000 D. P35,700

Equipment Replacement119.A company is considering replacing a machine with one that will save

cash operating costs and have P10,000 more depreciation expenseexisting machine. The tax rate is 40%. Buying the new machine will increflows of the company byA. P28,000 C. P18,0000B. P24,000 D. P6,000

120.Maxwell Company has an opportunity to acquire a new machine to replamachines. The new machine would cost P90,000, have a five-year lifsalvage value. Variable operating costs would be P100,000 per year. Thas a book value of P50,000 and a remaining life of five years. Its dP5,000, but it would be zero after five years. Variable operating costs wo

year. Ignore present value calculations and income taxes.Considering the five years in total, what would be the difference in profit by acquiring the new machine as opposed to retaining the present one?A. P10,000 decrease C. P35,000 increaseB. P15,000 decrease D. P40,000 increase

Investment Decision121.The NPV and IRR methods give

A. the same decision (accept or reject) for any single investmentB. the same choice from among mutually exclusive investmentsC. different rankings of projects with unequal livesD. the same rankings of projects with different required investments


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122.In choosing from among mutually exclusive investments the manager should normally selectthe one with the highestA. NPV C. payback reciprocalB. IRR D. book rate of return

123.Why do the NPV method and the IRR method sometimes produce different rankings ofmutually exclusive investment projects?A. The NPV method does not assume reinvestment of cash flows while the IRR method

assumes the cash flows will be reinvested at the internal rate of return.

B. The NPV method assumes a reinvestment rate equal to the discount rate while the IRRmethod assumes a reinvestment rate equal to the internal rate of return.*

C. The IRR method does not assume reinvestment of the cash flows while the NPV assumesthe reinvestment rate is equal to the discount rate.

D. The NPV method assumes a reinvestment rate equal to the bank loan interest rate whilethe IRR method assumes a reinvestment rate equal to the discount rate.

124.Investors, Inc. uses a 12% hurdle rate for all capital expenditures and has done the followinganalysis for four projects for the upcoming year:

Project 1 Project 2 Project 3 Project 4

Ini ti al cas h ou tl ay P200 ,0 00 P29 8,00 0 P2 48 ,0 00 P272 ,0 00Annual net cash inflows

Year 1 P 65,000 P100,000 P 80,000 P 95,000Year 2 70,000 135,000 95,000 125,000

Year 3 80,000 90,000 90,000 90,000Year 4 40,000 65,000 80,000 60,000

Net present value ( 3,798) 4,276 14,064 14,662Profitability index 98% 101% 106% 105%Internal rate of return 11% 13% 14% 15%

Which project(s) should Investors, Inc. select during the upcoming year under each budgetedamount of funds?

No Budget Restriction P600,000Available Funds P300,000Available Funds

A. Projects 2,3, & 4 Projects 3 & 4 Project 3B. Projects 1, 2, & 3 Projects 2, 3 & 4 Projects 3 & 4C. Projects 1, 3, & 4 Projects 2 & 3 Project 2D. Projects 3 & 4 Projects 2 & 4 Projects 2 & 4

Comprehensive125.Which of the following combinations is possible?

Profitability Index NPV IRR

A. greater than 1 positive equals coB. greater than 1 negative less thanC. l ess than 1 negative less thanD. less than 1 positive less than

MASTER BUDGET

Basic Concepts126.Zero-base budgeting requires managers to

A justify expenditures that are increases over the prior periods budgeteB. justify all expenditures, not just increases over last years amount.C. maintain a full-year budget intact at all times.D. maintain a budget with zero increases over the prior period.

Production Budget127.Isabelle, Industries plans to sell 200,000 units of Batik products in Octob

growth in sales of 5 percent per month. The target ending inventory in u80 percent of the next months estimated sales. There are 150,000 unitsend of September. The production requirement in units of Batik forDecember 31 would beA. 670,560 C. 665,720

B. 691,525 D. 675,925

Cash Budget128.The Mango Company is preparing its cash budget for the month of

information is available concerning its accounts payable:Estimated credit sales for May Actual credit sales for April Est im ated c ol lect ions i n M ay fo r cre di t sal es i n May Est im ated c ol lect ions i n M ay fo r cre di t sal es i n Ap ri l Estimated collections in May for credit sales prior to April Estimated write-offs in May for uncollectible credit sales Estimated provision for bad debts in May for credit sales in May

What are the estimated cash receipts from accounts receivable collectionsA. P142,000 C. P150,000

B. P149,000 D. P157,000


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129.At the beginning of the current month, Rose had P100,000. Cash disbursements wereP2,600,000 and cash collections were P2,850,000. Rose invests all excess cash in a moneymarket fund and has a line of credit to cover cash deficiencies.If Rose wishes to start the next month with P150,000, Rose mustA. invest P200,000 C. invest P350,000B. borrow P400,000 D. do nothing

FINANCIAL STATEMENT ANALYSISHorizontal Analysis

130.Sales for a three-year period are: Year 1, P4.0 million, Year 2, P4.6 million, and Year 3, P5.0million. Using year 1 as the base year, the respective percentage increase in sales in year 2and 3 areA. 115% and 125% C. 115% and 130%B. 115% and 109% D. 87% and 80%

Solvency Ratio131.A firms financial risk is a function of how it manages and maintains its debt. Which one of the

following sets of ratios characterizes the firm with the greatest amount of financial risk?A. High debt-to-equity ratio, high interest coverage ratio, volatile return on equityB. High debt-to-equity ratio, high interest coverage ratio, stable return on equityC. Low debt-to-equity ratio, low interest coverage ratio, volatile return on equityD. High debt-to-equity ratio, low interest coverage ratio, volatile return on equity*

132.The ratio that measures a firms ability to generate earnings isA. times interest earned. C. days sales in receivables.B. sales to working capital . D. operating asset turnover.

Other Ratio133.Taylor company paid out one-half of its 2002 earnings in dividends. Taylors earnings

increased by 20%, and the amount of its dividends increased by 15% in 2003. Taylorsdividend payout ratio for 2003 wasA. 75.0% C. 47.9%B. 52.3% D. 41.7%

134.Glo expects sales for 2002 to be P2,000,000, resulting in a return on sales of 10%. Thedividend payout rate is 60%. Beginning stockholders equity was P850,000 and currentliabilities are projected to be P300,000 at the end of 2002.

What are the total equities available if the ratio of long-term debt to sto60%?A. P1,788,000 C. P2,046,000B. P1,980,000 D. P858,000

135.The following were reflected from the records of War Freak Company:Earnings before interest and taxes Interest expense Preferred dividends

Payout ratio Shares outstanding throughout 2003Preferred Common

Income tax rate Price earnings ratio

The dividend yield ratio isA. 0.50 C. 0.12B. 0.40 D. 0.08

Integrated Ratios136.Selected data from Maui Companys year-end financial statements are p

difference between average and ending inventory is immaterial.Current ratio

Quick ratio Current liabilities Inventory turnover (based on cost of sales) Gross profit margin

Mauis net sales for the year wereA. P800,000 C. P672,000B. P480,000 D. P1,200,000

137.Assume you are given the following relationships for the Bryan Company:Sales/total assets Return on assets (ROA) Return on equity (ROE)

The Bryan Companys debt ratio isA. 40% C. 60%

B. 35% D. 65%


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138.The following data were obtained from the records of Trend, Inc.:Current ratio (at year end) 1.5 to 1Inventory turnover based on sales and ending inventory 15 timesInventory turnover based on cost of goods sold and ending inventory 10.5 timesGross margin for 2002 P315,000

What was Trend, Inc.s December 31, 2002 balance in the Inventory account?A. P138,000 C. P140,000B. P 70,000 D. P135,000

139.The board of directors of Contemporary Company was unhappy with the current return oncommon equity. Though the return on sales (profit margin) was impressively good at 12.5percent, the asset turnover was only 0.75. The present debt ratio is 0.40.Atty. Tristan, the vice-president of corporate planning, presented a proposal as follows:

Profit margin should be raised to 15 percent.

The new capital structure will be revised by raising debt component.

The asset turnover will be maintained at 0.75.The proposed adjustment is estimated to raise return on equity by 50 percent.What debt ratio did Atty. Tristan propose in order to raise the return on equity (ROE) to 150percent of the present level?A. 0.52 C. 0.61B. 0.68 D. 0.72

Sensitivity Analysis

140.Annette Company uses the direct write-off method to account for uncollectible accountsreceivable. If the company subsequently collects an account receivable that was written off ina prior accounting period, the effect of the collection of the account receivable on Annettescurrent ratio and total working capital would be

A. B. C. D.

Current Ratio None Increase Decrease NoneWorking Capital None Increase Decrease Increase

141.The days sales-in-receivable ratio will be understated if the companyA. uses a natural business year for its accounting period*B. uses a calendar year for its accounting periodC. uses average receivable in the ratio calculationD. has high sales at the end of the year

WORKING CAPITAL MANAGEMENTWorking Capital Policy142.As a company becomes more conservative with respect to working capita

to have a(n)A. increase in the ratio of current liabilities to noncurrent liabilities.B. decrease in the operating cycle.C. decrease in the operating cycle.D. increase in the ratio of current assets to noncurrent liabilities.*

143.Wen Company follows and aggressive financing policy in its working while Manong Corporation follows a conservative financing policy. Whicstatements is correct?A. Wen has low ratio of short-term debt to total debt while Manong has

term debt to total debt.B. Wen has a low current ratio while Manong has a high current ratioC. Wen has less liquidity risk while Manong has more liquidity risk.D. Wen finances short-term assets with long-term debt while Manong

assets with short-term debt.

Cash Management144.Gear Inc., has a total annual cash requirement of P14,700,000 which are

Gear has the opportunity to invest the money at 24% per annum. The comaverage, P40 for every cash conversion to marketable securities.

What is the optimal cash conversion size?A. P60,000 C. P80,000B. P62,500 D. P70,000

145.The Alabang Company has a daily average collection of checks of P2company 4 days to convert the checks to cash. Assume a lockbox systewhich would reduce the cash conversion period to 3 days. The lockbox net cost of P25,000 per year, but any additional funds made available cou8 percent per year. Should Alabang adopt the lockbox system?A. Yes; the system would free P250,000 in fundsB. Yes; the benefits of the lock-box system exceed the costs.C. No; the benefit is only P10,000.D. No; the firm would lose P5,000 per year if the system were used.


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Receivables Management146.It is held that the level of accounts receivable that a firm has or holds reflects both the volume

of a firms sales on account and a firms credit policies. Which one of the following items is notconsidered as part of a firms credit policy?A. The maximum risk group to which credit should be extended.B. The extent (in terms of money) to which a firm will go to collect an account.C. The length of time for which credit is extended.D. The size of the discount that will be offered.

147.Relax Companys budgeted sales for the coming year are P40,500,000 of which 80% areexpected to be credit sales at terms of n/30. Relax estimates that a proposed relaxation ofcredit standards will increase credit sales by 20% and increase the average collection periodfrom 30 days to 40 days. Based on a 360-day year, the proposed relaxation of credit tostandards will result in an expected increase in the average accounts receivable balance ofA. P540,000 C. P900,000B. P2,700,000 D. P1,620,000

148.Matang-Lawins budgeted sales for the coming year are P48,000,000, of which 80% areexpected to be credit sales at a terms of n/30. Matang-Lawin estimates that a proposedrelaxation of credit standards would increase credit sales by 30 percent and increase theaverage collection period from 30 days to 45 days. Based on a 360-day year, the proposedrelaxation of credit standards would result in an expected increase in the accounts receivablebalance of

A. P3,440,000 C. P3,040,000B. P1,440,000 D. P960,000

149.Lipa company currently has annual sales of P2,000,000. Its average collection period is 40days, and bad debts are 5 percent of sales. The credit and collection manager is consideringinstituting a stricter collection policy, whereby bad debts would be reduced to 2 percent of totalsales, and the average collection period would fall to 30 days. However, sales would also fallby an estimated P250,000 annually. Variable costs are 60 percent of sales and the cost ofcarrying receivables is 12 percent. Assume a tax rate of 40 percent and 360 days per year.What would be the incremental investment in receivables if the change were made?A. P(16,667) C. P(48,611)B. P(27,167) D. P(45,833)

Inventory Management150.Which of the following items is irrelevant for a company that is attempting

of the stockout?A. Cost of placing an order C. Storage cost of inventB. Contribution margin on lost sales D. Size of the safety stoc

151.When a specified level of safety stock is carried for an item in inventory, thlevel for that itemA. decreased by the amount of the safety stock.

B. is one-half the level of the safety stock.C. increases by one-half the amount of the safety stock.D. increases by the amount of the safety stock.

152.Gleim Company, which manufactures a line of appliances, has an annuawashing machine estimated at 7,500 units. The annual cost of carrying oP200, and the cost to initiate a production run is P5,000.There are no HD hand, and Gleim has scheduled 5 equal production runs of HD washicoming year. Gleim has 250 business days per year. Assume that sthroughout the year and that production is instantaneous.If Gleim does not maintain a safety stock, the estimated total carrying ccosts for the coming year are:

A. B. C.

Carrying costs P150,000 P300,000 P150,000

Set-up costs P 25,000 P 25,000 P 5,000

153.The sales office of Hermit Company has developed the following probadaily sales of a perishable product.

X (Units Sold) P (Sales = X

200 0.2250 0.5300 0.2350 0.1

The product is restocked at the start of each day. If the company desirein satisfying sales demand, the initial stock balance for each day should bA. 245 C. 315B. 300 D. 220


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154.Each stockout of a product sold by AFM Co. costs P1,750 per occurrence. The companyscarrying cost per unit of inventory is P5 per year, and the company orders 1,500 units ofproduct 20 times a year at a cost of P100 per order. The probability of a stockout at variouslevels of safety stock are:

Uni ts of Sa fety Stoc k Pro ba bi li ty o f Stoc kou t

0 0.50100 0.30200 0.14300 0.05

400 0.01The optimal safety stock level for the company based on the units of safety stock level aboveisA. 0 units C. 300 unitsB. 100 units D. 400 units

Trade Credit155.If a retailers term of trade are 3/10, net 45 with supplier, what is the cost on an annual basis of

not taking the discount? Assume a 360-day year.A. 24.00% C. 24.74%B. 37.11% D. 31.81%

Short-term Loans156.Alice Company borrows from a bank a certain loan at a stated discount rate of 12 percent per

annum. The bank requires 10 percent of loan as compensating balance in its new checkingaccount. The loan is payable at the end of 6 months. The effective interest rate of this loan isA. 28.21% C. 14.29%B. 27.27% D. 15.38%

157.The Dean Company has an outstanding 1 year bank loan of P800,000 at a stated interest rateof 8%. In addition, Dean is required to maintain a 20% compensating balance in its checkingaccount. Assuming Dean would normally maintain a zero balance in its checking account, theeffective interest rate on the loan isA. 8.0% C. 11.11%B. 10.0% D. 6.4%

COST OF CAPITALCost of Debt158.The Maru Companys bonds have 5 years remaining to maturity. Interes

bonds have a P1,000 face value; and the coupon interest rate is 9 percenWhat is the estimated yield to maturity of the bonds at their current marketA. 10.64 percent C. 11.76 percentB. 11.00 percent (?) D. 10.00 percent

Capital Asset Pricing Model

159.Spec, Inc.s stock is expected to generate a dividend and terminal value oP57.00. The stock has a beta of 1.3, the risk-free interest rate is 6 percereturn market return is 11 percent. What should the equilibrium price omarket now?A. P50.67 C. P53.77B. P51.35 D. P43.84

Dividend Growth Model160.Tiger Companys stock is currently selling for P60 a share. The firm is ex

per share and to pay a year-end dividend of P3.60.If investors require a 9 percent return, what rate of growth must be expectA. Zero growth C. 40.0 percentB. 3.0 percent D. 50.0 percent

Dividend Policy161.Resi, Inc. expects net income of P800,000 for the next fiscal year. Its capital structure is 40% debt and 60% common equity. The director of cdetermined that the optimal capital spending for next year is P1,200,00strict residual dividend policy, what is the expected dividend payout ratio fA. 80.0% C. 40.0%B. 66.7% D. 10.0%

162.Galvez Company expects next years after-tax income to be P7,500,000. is currently 40 percent. Galvez has P6,000,000 of profitable investmentwishes to maintain its existing debt ratio. According to the residual divideexpected dividend payout ratio next year?A. 52.0 percent C. 48.0 percentB. 75.0 percent D. 25.0 percent


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163.Glenda Company expects to generate P10 million internally which could be available forfinancing part of its P12 million capital budget for this coming year. Glendas managementbelieves that a debt-equity ratio of 40 percent is best for the firm. How much should be paid individends if the target debt-equity ratio is to be maintained?A. P2,800,000 C. P8,571,429B. P1,428,571 D. P4,000,000

QUANTITATIVE METHODSProbabilities

164.Express Co. is developing a silver mine at a cost of P5 million. There is a 20% probability thatsilver worth P15 million can be sold. There is a 20% probability that the silver will only beworth P500,000. What is the maximum Express would be willing to spend to develop themine?A. P10,000,000 C. P3,100,000B. P 5,000,000 D. P0

165.CTV Company has three sales departments. Department FA processes about 50 percent ofCTVs sales, Department TA about 30 percent, and Department PA about 20 percent. In thepast, Departments FA, TA, and PA had error rates of about 2 percent, 5 percent, and 2.5percent, respectively. A random audit of the sales records yields a recording error of sufficientmagnitude to distort the companys results. The probability that Department FA is responsiblefor this error isA. .50 C. .02

B. .33 D. .25

166.A beverage stand can sell either soft drinks or coffee on any given day. If the stand sells softdrinks and the weather is hot, it will make P2,500; if the weather is cold, the profit will beP1,000. If the stand sells coffee and the weather is hot, it will make P1,900; if the weather iscold, the profit will be P2,000.The probability of cold weather on a given day at this time is60%.The expected payoff for either selling coffee or soft drinks and the expected payoff if thevendor has perfect information are

Coffee Soft drinks Perfect information

A. P1,360 P1,600 P3,000B. P1,960 P1,600 P2,200C. P2,200 P1,900 P1,360D. P3,900 P1,900 P1,960

Linear Programming167.Anderson Co. manufactures two different products, A and B. The compan

raw materials and 300 direct labor hours available for production. The tcontribution margins per unit are as f ollows:

A

Raw materials per unit (lbs) 1 Direct labor hours per unit 4 Contribution margin per unit P4

The objective function for maximizing profits and the equation for th

materials are:Objective Function Constraint on raw

A. Max P1A + P2B 4A + 2B < 1B. Max P4A + P5B 1A + 2B < 1C. Max P4A + P2B 4A + 5B < 1D. Min P4A + P5B 4A + 5B < 3

ACTIVITY-BASED COSTING168.A cost system that first traces costs to activities and then traces cost from

A. Job order cost system. C. Activity-based cost syB. Pro ce ss c ost sy stem . D. F lex ibl e cos t system .

169.The last step in activity-based costing is toA. identify the major activities that pertain to the manufacture of specific

B. allocate manufacturing overhead costs to activity cost poolsC. identify the cost drivers that accurately measure each activitys contr

productD. assign manufacturing overhead costs for each activity cost pool to pr

170.McMds standard cost card indicates that it takes three hours of direct lunit of product. A recently conducted time and motion study revealed thhour to produce the same unit. Labor cost is P150 per hour.McMds value-added, and nonvalue-added costs would beA. P150 and P0 C. P150 and P300B. P0 and P150 D. P450 and P0

171.Designing and redesigning are activities that are classified asA. facility level C. unit level

B. batch level D. product level


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172.A company that uses activity-based costing to develop standard costsA. will usually have more than one variable overhead component in its standard costsB. cannot compute variable overhead efficiency variancesC. will have less information about the profitability of individual productsD. all of the above

173.Classify the following as volume (unit) base or nonvolume (activity) base:1. Number of purchase orders issued2. Direct labor hours

3. Number of machine hours4. Number of set ups5. Number of receiving reports issued6. Direct material cost

Volume (Unit) Base Nonvolume (Activi ty) Base

A. 1, 4, 5, 6 2, 3B. 1, 4, 5 2, 3, 6C. 1, 2, 3, 4, 5 6D. 2, 3, 6 1, 4, 5

174.The Oilfield plant has two categories of overhead: maintenance and inspection. Costsexpected for these categories for the coming year are as follows:

Maintenance P100,000Inspection 150,000

The plant currently applies overhead using direct labor hours and expected capacity of 50,000direct labor hours. The following data have been assembled for use in developing a bid for aproposed job:

Direct materials P1,000Direct labor P4,000Machine hours 500Number of inspections 4Direct labor hours 800

Total expected machine hours for all jobs during the year is 25,000, and the total expectednumber of inspections is 1,500.Using activity-based costing and the appropriate activity drivers, the total cost of the potentialjob would beA. P2,400 C. P7,400B. P3,600 D. P7,750

QUALITY COST175.The cost of statistical quality control in a product quality cost system is

A. training cost C. appraisal costB. internal failure cost D. prevention cost

INFORMATION SYSTEMS176.The process of learning how the current system, functions, determining

and developing the logical requirements of a proposed system is referred A. systems maintenance C. systems feasibility stu

B. systems analysis D. systems design

177.Which of the following is not a characteristic of a batch processing systemA. The collection of like transactions which are sorted and processed s

master file.B. Keypunching of transactions, followed by machine processing.C. The production of numerous printouts.D. The posting of a transaction, as it occurs, to several files without inter

178.All activity related to a particular application in a manual system is recordname of the corresponding item in a computerized system is aA. master file C. transaction fileB. year-to-date file D. current balance file

179.One of the first steps in the creation of a data base is toA. define common variables and fields used throughout the firm*B. increase the secondary storage capacity.C. obtain software that will facilitate data retrieval.D. integrate the accounting system into the data base.

180.A system with several computers that are connected for communication apurposes but that permits each computer to process its own data is aA. distributed data processing network C. decentralized networkB. centralized network D. mult idrop network

181.The process of developing specifications fo

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